16 Sep 10
whenever the price of an investment starts to continually rise, it will inevitably attract people who aren't focused on underlying value of that investment - all they see is that "its value has been rising steadily for a pretty long time -- COOL!!! -- so this should be a way to make a really EASY profit"
this psychology, of course, causes the price to rise even more - which attracts even more of these "easy profit" investors -- until something makes all these "Wile E. Coyotes" finally look down and realize there's no ground beneath them -- and then comes the crash.
in all likelihood, anything whose value has been steadily rising (especially if its rapidly rising) is at least in part a bubble.
16 Sep 10
Originally posted by KazetNagorrahttp://inflationdata.com/inflation/Inflation_Rate/Gold_Inflation.asp
I don't see the fundamental reason for an inflation-adjusted price increase of 200% over the last decade. Did we invent some new application for gold in the last decade that would make it more useful?
16 Sep 10
2 edits
Originally posted by Metal BrainSo the biggest drop in gold was the 1979 oil crisis and yet he says it's a good "hedge"? Haha!
http://inflationdata.com/inflation/Inflation_Rate/Gold_Inflation.asp
His arguments actually defend that gold rises in the run-up to a crisis (see his comments about trust in IOUs) because people don't know where to put their money. This means you get high volatility in gold during crisis (fast rises followed by fast drops). That's exactly what you don't want in a hedge.
Investors flock to gold because they think other investors will flock to gold and so prices rise when they do. That's as close as a definition of a bubble as it gets. Sure you can make money by riding the wave and exiting before the crash, but that's what happens in any bubble. Like the musical chairs, the last one to stop dancing is going out.
16 Sep 10
Originally posted by PalynkaEven so, that just establishes that it is possible for gold to go over $2000.00 an ounce, right?
So the biggest drop in gold was the 1979 oil crisis and yet he says it's a good "hedge"? Haha!
His arguments actually defend that gold rises in the run-up to a crisis (see his comments about trust in IOUs) because people don't know where to put their money. This means you get high volatility in gold during crisis (fast rises followed by fast drops). That' ...[text shortened]... ppens in any bubble. Like the musical chairs, the last one to stop dancing is going out.
16 Sep 10
Originally posted by Metal BrainDepends on how long the music keeps playing. Sometimes the music can play for a very long time.
Even so, that just establishes that it is possible for gold to go over $2000.00 an ounce, right?
But the longer the music plays, the greater the number of participants, and the fewer the number of chairs -- so when it finally does stop...look out!!
16 Sep 10
Originally posted by MelanerpesI hope the royalties are in the mail. 😉
Depends on how long the music keeps playing. Sometimes the music can play for a very long time.
But the longer the music plays, the greater the number of participants, and the fewer the number of chairs -- so when it finally does stop...look out!!
16 Sep 10
Originally posted by MelanerpesA prime example is the Nikkei. A bubble of epic proportions, that one.
Depends on how long the music keeps playing. Sometimes the music can play for a very long time.
But the longer the music plays, the greater the number of participants, and the fewer the number of chairs -- so when it finally does stop...look out!!
16 Sep 10
Originally posted by KazetNagorrathe main "rational" reason why people buy gold despite really high prices is that they fear that large amounts of government spending or debt levels will soon lead to runaway inflation that will destroy the value of the existing major currency -- making even the safest bonds essentially worthless.
I don't see the fundamental reason for an inflation-adjusted price increase of 200% over the last decade. Did we invent some new application for gold in the last decade that would make it more useful?
So if you really believe we're soon to face what Germany faced in the 1920's, then buying gold for $2000 or more per ounce would be a very sound investment. Otherwise, you're probably going to be one of the many losers at this game of musical chairs.